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The Japan Times ‎

Jul 7, 2014

by Yoon Young-Kwan

A vast revolution in military affairs is taking place across East Asia. The latest signs are

Chinese President Xi Jinping’s purge of Gen Xu Caihou on charges of corruption, and

Japan’s “reinterpretation” of Article 9 of its constitution to permit the country to provide military aid to its allies.(Article 9 of the Constitution says the Japanese people “forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes.”)

Despite the rising regional tensions that inspired these moves, China’s relations with its neighbours and the United States are not fated to lead to direct confrontation. But the relentless march of new initiatives to meet the perceived “China threat” will require the region’s political leaders, including the Chinese, to address their disputes in new and more creative ways if that outcome is to be avoided.

In general, there are three ways to foster international peace: Deepening economic interdependence, promoting democracy, and building international institutions. Unfortunately, because East Asia’s political leaders have failed to pursue the latter objective, they now find themselves

playing dangerous balance-of-power games reminiscent of Europe a century ago.

Deepening economic interdependence in the wake of Asia’s 1997 financial crisis has not generated political momentum for peace and cooperation. The region’s business leaders have been unable to prevent deteriorating foreign relations from harming their interests. By contrast, military lobbying now deeply influences foreign and defence policies — witness

China’s double-digit increase in defence spending and

rising US arms sales in the region. What explains this failure?…

Until recently, the US seemed to have assumed that China’s engagement with Western democracies would bolster peaceful ties. But,

since the 2008 financial crisis, China’s confidence in its authoritarian development model has grown stronger. Its leaders now increasingly appear to believe that

a new “Beijing Consensus” of mercantilism and state intervention has

replaced the old “Washington consensus” of free trade and deregulation.

China’s ideological incompatibility with the US thus is

making the shift in their relative power difficult to achieve peacefully.

In the late 19th century, a rising US was able to cooperate with a declining Britain, owing to their shared culture and values. China’s leaders, however, tend to suspect that the US is deliberately trying to undermine their country’s political stability by questioning its record on human rights and political freedoms.

Meanwhile, Mr. Xi’s domestic policies seem to be taking the country ever further from Western norms. It is this ideological divide that is undermining the development in East Asia of institutions that establish principles, rules, and decision-making procedures for the region.

While much of the West is bound together by institutions such as the Organisation for Security Cooperation in Europe and Nato, East Asia’s main body, the Asean Regional Forum, is too weak to play an analogous role, leaving the region beset with unregulated rivalries. So far, US and East Asian leaders have done little beyond offering rhetorical support for the creation of

multilateral security institutions. With the exception of the almost defunct six-party talks aimed at eliminating the nuclear threat posed by North Korea, Asia’s powers refuse to be constrained by international rules or norms. Instead,

East Asia’s leaders resort to realpolitik.

Unfortunately, unlike Europe’s 19th-century political masterminds who crafted durable international alliances, Asia lacks leaders willing and able to look beyond their narrow national interests.

For example, China’s leaders seem to believe that the

2008 economic crisis and

the high costs of two foreign wars have left the

US in no position to exercise international leadership.

Testing US power in this way could prove to be a dangerous miscalculation. Its interests in East Asia date back to the late 19th century. Just as Britain refused to concede naval supremacy to Germany a century ago, the US will not easily accept any Chinese challenge to its strategic position in the western Pacific, especially given that so many East Asian states are pleading for US protection.

China and the US need to talk.

Despite their economic interdependence and some 90 inter-governmental channels for bilateral dialogue,

the two superpowers are caught in a perilous tug-of-war over interests in the East and South China Seas and the western Pacific.

Sino-Japanese relations are particularly fraught, with

two decades of economic stagnation in Japan and

rapid growth in China fuelling nationalist overreaction on both sides. Having become accustomed to

outsourcing its security to the US, and despite having the

world’s third-largest economy, Japan neglected to develop its own constructive diplomatic vision. It remains to be seen whether Prime Minister Shinzo Abe’s constitutional reinterpretation, cloaked in the language of regional cooperation, advances such a new vision.

It does not help that the US wants Japan to shoulder more of the burden of maintaining Asia’s security, a position that may make sense strategically and financially, but that betrays a lack of understanding of the political context. The United States seems to underestimate regional concerns over

Japan’s potential remilitarisation.

By providing Japan with a diplomatic carte blanche, the US may find itself hostage to Japanese interests, with the result that Japan becomes part of Asia’s security problem, not part of its solution. Asia-Pacific leaders must shake off their complacency. Serious efforts and far-reaching compromises are needed to begin the process of building institutions for regional security cooperation.

Otherwise, the much-heralded “Asian century”, far from bringing economic prosperity and peace, will be an age of suspicion and peril.

Yoon Young-kwan, former Minister of Foreign Affairs and Trade of the Republic of Korea, is Professor of International Relations at Seoul National University.

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30 July 2014

Russia said on Wednesday that the latest sanctions of the European Union (EU) against Russia run counter to rules of the World Trade Organization (WTO) and will have adverse effects on EU countries.

„The restrictive measures in the financial sphere will also have negative consequences for the EU members‘ banks operating in Russia,“ the ministry said in a statement, adding that the sectorial sanctions run counter to the WTO rules.

The EU has agreed on a package of „significant“ additional restrictive measures targeting Russia’s finance, defense and energy sectors, said the European Council on Tuesday.

The tougher sanctions will

impose an arms embargo,

establish an export ban on dual-use goods for military end users, and

curtail Russian access to sensitive technologies particularly in the field of the oil sector.

The Russian ministry accused the

EU of being manipulated by “ Washington’s dictation,“ warning that the bloc should get ready for

serious economic costs of „doubtful geopolitical schemes.“ “ Moscow is disappointed by the

EU inability to play an independent role in global affairs,“ it said. „The EU voluntarily creates obstacles for further cooperation with Russia in such a key sphere as energy, which is a thoughtless, irresponsible step.

It will be the European energy market that pays the price,“ it said.

The ministry claimed that Russia will overcome possible economic difficulties to be caused by the new sanctions. „The difficulties which could arise in certain sectors of the Russian economy will be surmounted. The efficiency and self- sufficiency of our economy will rise,“ it said. The EU economy will suffer from no less negative effects than Russia’s, the ministry said. Moreover, the ministry said that the sanctions prove that the West is reluctant to settle the Ukraine crisis…

July 30, 2014

the EU’s inability to act independently from Washington’s dictation in the international arena,

the Russian Foreign Ministry said in response to the new package of sanctions… “We feel ashamed for the

European Union who, after long searching for a unified voice is nowspeaking with Washington’s voice, having practically abandoned basic European values, including the presumption of innocence,”

the Foreign Ministry said in a statement Wednesday, a day after the EU adopted a new round of economic sanctions against Russia over the Ukrainian crisis. The EU’s adoption of new anti-Russian sanctions on July 29 demonstrates its

lack of political will in general, as well as a lack of determination to resolve the Ukrainian crisis,

the Foreign Ministry said. The union of 28 member states continues to “blindly ignore” the reasons behind the tragic developments in southeast Ukraine… In Russia’s opinion, the

EU has given Kiev carte blanche for its actions in eastern Ukraine

and in effect approved Kiev’s portrayal of a punitive operation against its own people as “a reasonable approach to operations to restore law and order.” … “It appears that the

EU is ready to suffer serious economiccosts for the sake of implementing questionable geopolitical schemes – which are, in fact, not their own schemes,” the ministry said.

The Russian and EU economies, Moscow said, are “communicating vessels” and Brussels’ new sanctions will also have an impact on the EU economy. Russia also pointed out that “sectorial sanctions” contradict the World Trade Organization’s rules. Additionally, financial limitations may have a negative impact for EU banks working in Russia. Moscow also said it was bewildered by the decision to ban trading weapons and military equipment with Russia and that is while similar limitations have recently been lifted for Ukraine…

One aspect of the Ukraine crisis that both Russia and the West need to understand is that the rest of the world appears to be relatively unconcerned about it. Though the West, along with Japan, may view the crisis as a challenge to the global order, most other states do not feel threatened by Russia’s annexation of Crimea or designs it may have elsewhere in Ukraine.Instead, many view this crisis as being largely about Europe’s inability to resolve its own regional disputes – though a successful outcome could bolster Europe’s global influence as a peacemaker… As emerging powers’ reactions to the Ukraine crisis demonstrate, world politics is no longer defined by what happens in Europe, even when a major conflict is brewing there.

The international system has become so multi-polar that non-European states can now choose to follow their own interests rather than feel obliged to side with the East or the West.

Few world leaders doubt that Russia’s use of force to compromise Ukraine’s territorial integrity, change its borders, and annex Crimea violated international law. China’s abstention in the subsequent United Nations Security Council vote clearly signaled its leaders’ displeasure with Kremlin policy. But nearly one-third of the UN’s members sent an equally emphatic message by abstaining or not participating in a General Assembly vote condemning Russia’s actions. Even Western-friendly governments – including Brazil, India, South Africa, and Israel – were not prepared to take sides. The Indian journalist Indrani Bagchi referred to the abstentions as a new form of non-alignment. Cynicism and schadenfreude may also be playing a role…The implicit message from the new non-aligned is straightforward: Why should we care about a territorial conflict in Europe when you Europeans fail to act decisively on Palestine, Kashmir, or territorial disputes in the East and South China Seas? Instead, many of these countries are calling on the West to deescalate the crisis and, as an official Chinese foreign-ministrystatement advocated, to “exercise restraint and refrain from raising tensions.” That is good advice – and no different from what Europeans tell others in similar situations. Unlike other regions of the world, however, Europe, including Russia, can be proud of its regional security organizations, such as the Organization for Security and Cooperation in Europe (OSCE); Europe needs to make them work…if Europe is unable to resolve the Ukraine crisis with diplomacy, its global influence, and that of Russia, will surely fade. Russia has reminded the world that it is possible to bully one’s neighbors and steal their territory using brute force; but, in a globalized, multi-polar system, this alone will not be enough to rally other countries to its cause. And the EU, as a highly sophisticated paper tiger, would be no more attractive.EU member states have no interest in letting their continent slip back into ethnic nationalism and power politics. The Ukraine crisis is therefore both a challenge and an opportunity.

If Europe wants to remain a pole in a multi-polar international system, it must prove that it can pursue a common foreign and security policy, particularly in times of crisis and conflict.

That means that the EU must emerge from the Ukraine crisis with a stronger commitment to common defense and joint contingency planning, and a unified energy policy that can secure independence from Russian oil and gas. But Europe must also show that it can, and will, defend the principles of rules-based international relations…

Volker Perthes is Chairman and Director of Stiftung Wissenschaft und Politik, the German Institute for International and Security Affairs, Berlin.

Jul 16, 2014 By Yuriko Koike… For Germany and South Korea…relationships with historic allies – NATO and the United States, respectively – appear to be changing before our eyes.Through their huge purchases of goods, with promises of even more to come, today’s authoritarian/mercantilist regimes in Russia and China may be about to achieve by commerce what the Soviets could not achieve by bribery and threats. And the scale of that commerce is breathtaking, with German exports to China growing from $25.9 billion a decade ago to $87.6 billion in 2011, while South Korea’s exports have increased from $53 billion to $133 billion during the same period of time. A form of stealth neutralism, indeed, appears to be entering both countries’ diplomacy. Witness Chinese President Xi Jinping’s recent trip to South Korea, German Chancellor Angela Merkel’s unwillingness to impose effective sanctions on Russia for its intervention in Ukraine, and the business-only focus of her just-concluded visit to China.In both Germany and South Korea, the idea that historic alliances may offer fewer tangible benefits than tacit neutrality – particularly in terms of exports – appears to be taking root, especially among business elites.Xi’s visit to Seoul was another bold step in China’s systematic efforts to wean South Korea from its commitment to the US-led international economic order.By offering to permit South Korea to settle its

bilateral trade accounts in renminbi, and to launch the first-ever Sino-South Korean initiative toward North Korea, Xi is seeking to convince South Korea’s leaders that the country’s future, including

reunification, will be determined in Beijing. China’s invitation to South Korea to

participate in a new Asian Infrastructure Investment Bank(alongside other countries in Asia and the Arab world, but excluding Japan and India) furthers Xi’s efforts to create an alternative financial system, with the AIIB mimicking the Asia Development Bank’s work.

China’s embrace of South Korea is part of a long-term strategy to turn it into a subordinate state in terms of foreign and national security policy… Given its insecurity, a by-product of the Korean Peninsula’s long division, South Korea requires, above all, calm and steady partners. But frequent changes in US policy toward Northeast Asia in recent years have disoriented South Korean policymakers, while Chinese policy, though consistent, confronts South Korea’s leaders with choices that they appear unprepared to make. As a result, South Korea’s elite appears to be splitting into pro-Chinese and pro-American factions that transcend party lines. Over a period of time, the only beneficiaries are likely to be those who call for “Finlandization” of the Korean peninsula.Meanwhile, the impact on German foreign policy of the country’s deepening economic ties with Russia has been evident throughout the Ukraine crisis. Though Merkel frequently admonished the Kremlin about its intervention in Ukraine, German public opinion – particularly that of the country’s business leaders – tied her hands. Indeed, German big businesses have been the main obstacle to imposing the type of systemic sanctions that might have dissuaded Russian President Vladimir Putin from annexing Crimea and continuing to back the insurgency (which Russia itself incited) in eastern Ukraine. This is not the only recent case in which Germany has distanced itself from its allies and partners. In Libya in 2011, Germany refused to offer even rudimentary material support to the military intervention staged by its British and French allies. Germany has also continuously failed to meet its commitment to spend 2% of its GDP on defense, at the same time that it has insisted that troubled EU economies stick to austerity budgets that limit their deficits to a fixed proportion of their economic output.Indeed, throughout the eurozone crisis, Germany did the absolute minimum – and always at the last possible moment – to assist its EU partners. And German leaders’ obsession with maintaining their country’s “golden decade” of exports appears to have gagged them on topics like China’s human rights abuses and its aggressive behavior toward its Asian neighbors. That silence is being rewarded with the first-ever joint cabinet sessions between a democracy and a communist dictatorship, which will take place in Berlin this autumn.In both Germany and South Korea, economic strength seems to have produced an illusion of policy independence that is opening a chasm between the two countries and their allies – a chasm that revelations of US spying, on Merkel in particular, have deepened…

Yuriko Koike, Japan’s former defense minister and national security adviser, was Chairwoman of Japan’s Liberal Democratic Party’s General Council and currently is a member of the National Diet.

America is the mightiest military power in the world. And that fact means absolutely nothing for the Ukraine crisis… The U.S. may threaten to impose economic sanctions, but here is why America will never smack Russia with a big stick:

Russia could totally devastate the U.S. as well as the rest of the planet. U.S. missile defenses, assuming they even work, are not designed to stop a massive Russian strike. For the 46 years of the Cold War, America and Russia were deadly rivals. But they never fought. Their proxies fought: Koreans, Vietnamese, Central Americans, Israelis and Arabs. The one time that U.S. and Soviet forces almost went to war was during the Cuban Missile Crisis. Neither Obama nor Putin is crazy enough to want to repeat that.

Russia has a powerful army.While the Russian military is a shadow of its Soviet glory days, it is still a formidable force. The Russian army has about 300,000 men and 2,500 tanks (with another 18,000 tanks in storage), according to the “Military Balance 2014″ from the International Institute for Strategic Studies. Its air force has almost 1,400 aircraft, and its navy 171 ships, including 25 in the Black Sea Fleet off Ukraine’s coast. U.S. forces are more capable than Russian forces… American troops would enjoy better training, communications, drones, sensors and possibly better weapons. However, better is not good enough…

Ukraine is closer to Russia. The distance between Kiev and Moscow is 500 miles. The distance between Kiev and New York is 5,000 miles. It’s much easier for Russia to send troops and supplies by land than for the U.S. to send them by sea or air.

The U.S.military is tired. After nearly 13 years of war, America’s armed forces need a breather. Equipment is worn out from long service in Iraq and Afghanistan, personnel are worn out from repeated deployments overseas, and there are still about 40,000 troops still fighting in Afghanistan.

The U.S.doesn’t have many troops to send.The U.S. could easily dispatch air power to Ukraine if its NATO allies allow use of their airbases, and the aircraft carrier George H. W. Bush and its hundred aircraft are patrolling the Mediterranean. But for a ground war to liberate Crimea or defend Ukraine, there is just the 173rd Airborne Brigade in Italy, the 22nd Marine Expeditionary Unit sailing off Spain, the 2nd Stryker Cavalry Regiment in Germany and the 82nd Airborne Division at Fort Bragg, North Carolina. While the paratroopers could drop into the combat zone, the Marines would have sail past Russian defenses in the Black Sea, and the Stryker brigade would probably have to travel overland through Poland into Ukraine. Otherwise, bringing in mechanized combat brigades from the U.S. would be logistically difficult, and more important, could take months to organize.

The American people are tired.Pity the poor politician who tries to sell the American public on yet another war, especially some complex conflict in a distant Eastern Europe nation…

America‘s allies are tired.NATO sent troops to support the American campaign in Afghanistan, and has little to show for it. Britain sent troops to Iraq and Afghanistan, and has little to show for it. It is almost inconceivable to imagine the Western European public marching in the streets to demand the liberation of Crimea, especially considering the region’s sputtering economy, which might be snuffed out should Russia stop exporting natural gas… And Germans fighting Russians again? Let’s not even go there.

This doesn’t mean that war is impossible. If Russia invades the Baltic States to “protect” their ethnic Russian minorities, the guns could indeed roar. Estonia, Latvia and Lithuania are NATO members. What would Ronald Reagan have done if the Soviets had invaded West Germany? Barack Obama would face more or less the same question in a Baltic crisis, or if a Ukraine conflict spills over into fellow NATO member Poland.

However, talk of using military force against Russia over Ukraine is just talk. It will stay that way.

For a generation, relations between the United States and Russia were essentially about history. Since the Cold War’s end, Russia had become increasingly peripheral to the US and much of the rest of the world, its international importance and power seemingly consigned to the past.

That era has now ended.

To be sure, the current conflict between the US and Russia over Ukraine is a mismatch, given the disparity in power between the two sides. Russia is not, and cannot even pretend to be, a contender for world domination… Yet the US-Russia conflict matters to the rest of the world.

It obviously matters most to Ukraine, part of which has become a battlefield. The future of Europe’s largest country – its shape, political order, and foreign relations – depends very much on how the US-Russian struggle plays out.

It may well be that Ukraine becomes internally united, genuinely democratic, and firmly tied to European and Atlantic institutions; that it is generously helped by these institutions and prospers as a result; and that it evolves into an example for Russians across the border to follow.

It may also be that at the end of the day, several Ukraines emerge, heading in different directions.

Ukraine’s fate, in turn, matters to other countries in Eastern Europe, particularly Moldova and Georgia. Both, like Ukraine, have signed association agreements with the European Union; and both will have to walk a fine line to avoid becoming battleground states between Russia and the West.

Similarly, Russia’s nominal partners in its Eurasian Union project – Armenia, Belarus, Kazakhstan, and Kyrgyzstan – will need to balance carefully between Russia, their nominal “strategic” ally, and the US, which holds the keys to the international political and economic system.

What happens to Ukraine matters to Western and Central Europe, too. Even though an enduring military standoff along NATO’s eastern border with Russia would pale in comparison to the Cold War confrontation with the Warsaw Pact, Europe’s military security can no longer be taken for granted. And as security worries on the continent rise,

EU-Russia trade will fall. As a result of US pressure, the EU will eventually buy less gas and oil from Russia, and the Russians will buy fewer manufactured goods from their neighbors. Distrust between Russia and Europe will become pervasive. The idea of a common space from Lisbon to Vladivostok will be buried. Instead, the

EU and the US will be aligned even more closely, both within a reinvigorated NATOand by means of theTrans-Atlantic Trade and Investment Partnership. Japan has a stake as well: its decision to join the US-led sanctions against Russia means foregoing plans to build a solid relationship with the Kremlin to balance China in Asia. The

US-Japan alliance will be reaffirmed, as will Japan’s position in that alliance. In a somewhat similar way,

South Korea will need to bow before US demands to limit its trade with Russia, potentially eliciting a less cooperative Kremlin stance on the divided Korean Peninsula.

As a result, the US-Russia conflict will probably lead to a strengthening of America’s position vis-à-vis its European and Asian allies, and a much less friendly environment for Russia anywhere in Eurasia…There is only one exception to this pattern of heightened US influence: China.

The sharp reduction of Russia’s economic ties with the advanced countries leaves China as the only major economy outside of the US-led sanctions regime. This increases China’s significance to Russia, promising to enable the Chinese to gain wider access to Russian energy, other natural resources, and military technology. China will study US strategy toward Russia and draw its own conclusions. But China has no interest in Russia succumbing to US pressure, breaking apart, or becoming a global power. Its interests are in keeping Russia as its stable strategic hinterland and a natural-resource base.

Chinese support for Russia to stand up to the US would be a novelty in world affairs…

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“Brazil plans to divorce itself from the US-centric internet over Washington’s widespread online spying, a move that many experts fear will be a potentially dangerous first step toward politically fracturing a global network built with minimal interference by governments… Most of Brazil’s global internet traffic passes through the United States, so Ms. Rousseff’s government plans to lay underwater fiber optic cable directly to Europe and also link to all South American nationsto create what it hopes will be a network free of US eavesdropping.”

A consortium of telecom and undersea cable companies competing for the contracts for the proposed BRICS cable show what they think the project should look like:

…Brazil’s Senate has unanimously adopted a bill which guarantees online privacy of Brazilian users and enshrines equal access to the global network. The bill known as the „Internet constitution“ or Marco Civil was first introduced in the wake of the NSA spying scandal and has now been signed into law by President Dilma Rousseff…The bill promotes freedom of information, making service providers not liable for content published by their users, but instead forcing the companies to obey court orders to remove any offensive material.

The principle of neutrality, calling on providers to grant equal access to service without charging higher rates for greater bandwidth use is also promoted. The legislation also limits the gathering and use of metadata on Internet users in Brazil…The final version bill states that companies collecting data on Brazilian accounts must obey Brazilian data protection laws even if the data is collected and stored on servers abroad…The adoption of the bill was a top priority for the Brazilian leader as a two-day

Net Mundial conference

opened in Brazil on Wednesday. The aim of the global event on internet governance is to discuss cyber security amid the NSA spying scandal. Safeguarding privacy and freedom of expression on the Internet are among the topics to be discussed according to a draft agenda…As part of the discussion, Russia and China have submitted a proposal jointly with Tajikistan and Uzbekistan asking for the UN to develop a code of conduct for the Internet.

Setting the tone for the 68th U.N. General Assembly session, Brazilian President Dilma Rousseff took her fight against spying by the U.S. National Security Agency (NSA) to the gathering of world leaders as she blasted the American government for its secret surveillance programs and also put proposed new rules for the governance of internet traffic and protection of citizen’s privacy…Ms. Rousseff called the U.S. intelligence program “a grave violation of human rights and civil liberties; invasion and capture of sensitive information relating to business activities and, above all , disregard for national sovereignty”.

Taking the podium before U.S. President Barack Obama, who was present in the assembly when she spoke, Ms. Rousseff …asked the U.S. to stop its illegal activities. “Dabbling in this way in the life of other countries is an affront to international law and the principles that should govern relations between them , especially between friendly nations,” she said. She refuted the U.S. argument that NSA espionage was aimed at combating terrorism and thus protect not only U.S. citizens but of the whole world. “Never can the right to security of the citizens of a country be secured by the violation of fundamental human rights of citizens of another country,” the Brazilian leader said.

“Brazil knows how to protect itself. We will redouble efforts to equip itself with legislation, technologies and mechanisms to protect us from unlawful interception of communications and data…My government will do everything in their power to defend the human rights of all Brazilians and all citizens of the world and protect the fruits of the ingenuity of our workers and our companies,” she added… She also presented an eight-point plan for global governance of the internet so that citizens’ rights and government infrastructure are protected. “The United Nations should play a leading role in efforts to regulate the behaviour of states facing these technologies and the importance of the internet, this social network, to build democracy in the world,” she said.

Russian President Vladimir Putin denied media reports that Russia was planning to reopen the Soviet-age SIGINT facility in Lourdes, Cuba, once was largest foreign listening post of its kind… When operational, the facility was manned by thousands of military and intelligence personnel, whose task was to intercept signals coming from and to the US territory and to provide communication for Russian vessels in the western hemisphere…

The facility in Lourdes, a suburb of Havana located just 250km from continental USA, was opened in 1967. At the peak of the cold war it was the largest signal intelligence center Moscow operated in a foreign nation, with 3,000 personnel manning it. From the base Russia could intercept communications in most part of the US including the classified exchanges between space facilities in Florida and American spacecraft…

Following the collapse of the Soviet Union the base was downscaled, but continued operation. After Russia was hit the 1998 economic crisis, it found it difficult to maintain many of its old assets, including the Lourdes facility… An additional blow came in July 2000, when the US House passed the Russian-American Trust and Cooperation Act, a bill that would ban Washington from rescheduling or forgiving any Russian debt to the US, unless the facility in Lourdes is shut down. Moscow did so in 2001 and also closed its military base in Vietnam’s Cam Ranh, with both moves reported as major steps to address Americans’ concerns. But, in the words of a military source cited by Kommersant, the US “did not appreciate our gesture of goodwill.”… With the Lourdes facility operational again, Russia would have a much better signal intelligence capability in the western hemisphere…

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U.S. Department of the Treasury

7/16/2014

In response to Russia’s continued attempts to destabilize eastern Ukraine and its ongoing occupation of Crimea, the U.S. Department of the Treasury today imposed a broad-based package of sanctions on entities in the financial services, energy, and arms or related materiel sectors of Russia, and on those undermining Ukraine’s sovereignty or misappropriating Ukrainian property.

More specifically: Treasury imposed sanctions that prohibit U.S. persons from providing new financing to two major Russian financial institutions (Gazprombank OAO and VEB) and two Russian energy firms (OAO Novatek and Rosneft), limiting their access to U.S. capital markets; Treasury designated eight Russian arms firms, which are responsible for the production of a range of materiel that includes small arms, mortar shells, and tanks…

By imposing sanctions on entities within the financial services and energy sectors, Treasury has increased the cost of economic isolation for key Russian firms that value their access to medium- and long-term U.S. sources of financing. By designating firms in the arms or related materiel sector, Treasury has cut these firms off from the U.S. financial system and the U.S. economy… As a practical matter, this step will close the medium- and long-term U.S. dollar lending window to these banks, and will impose additional significant costs on the Russian Government for its continued activities in Ukraine. We have not blocked the property or interests in property of these banks, nor have we prohibited transactions with them beyond these specific restrictions…

Gazprombank OAO is a Russian financial institution… has expanded to provide services to more than 45,000 companies and 3 million private individuals. Gazprombank OAO has more than 40 branches across Russia, and a number of international subsidiaries. Gazprombank OAO specializes in the private banking and corporate financing services.

VEB is a Russian state-owned financial institution that acts as a development bank and payment agent for the Russian government. VEB’s supervisory board is chaired by the Russian prime minister, and the chairman of the bank is appointed by the Russian president. VEB acts as an agent for the Russian Government for the purposes of accounting, servicing, and repaying the sovereign debts of the former USSR and Russia; accounting, servicing, and repaying government loans issued by the former USSR and Russia to foreign borrowers; collecting debts from legal entities of Russia and municipal governments; providing and executing state guarantees of Russia and monitoring projects implemented by Russia with involvement of international financial institutions…

As with the financial institutions, we have not blocked the property or interests in property of these companies, nor prohibited transactions with them beyond these specific restrictions. However, the scope of the prohibited transaction types and the number of energy companies may be expanded under the authorities of E.O. 13662, if the Russian government does not take steps to de-escalate the situation in Ukraine.

OAO Novatek is Russia’s largest independent natural gas producer.

Rosneft is Russia’s largest petroleum company and third largest gas producer

Treasury today has also designated and blocked the assets of Almaz-Antey, Enterprise Bazalt, JSC Concern Sozvezdie, JSC MIC NPO Mashinostroyenia, Kalashnikov Concern, KBP Instrument Design Bureau, Radio-Electronic Technologies, and Uralvagonzavod … The designated firms are responsible for the production of a range of materiel, from small arms to mortar shells to tanks…

Almaz-Anteymanufactures surface-to-air missile systems currently used by the Russian military.

Federal State Unitary Enterprise State Research and Production Enterprise Bazalt (“Bazalt”) is involved in the design and construction of air launched ordnance, rocket propelled grenades, and armored fighting vehicle ammunition. Bazalt’s manufacturing interests include aerial bombs, mortar shells, grenades, anti-tank and anti-saboteur grenade launchers, and projectiles of all types and calibers.

JSC Concern Sozvezdie develops and produces high-tech control and communication systems, radio electronic warfare and special equipment for military forces… JSC Concern Sozvezdie’s main activities include producing and developing materiel including automated control systems and communication systems for the tactical sector, automated control systems and communication systems for anti-missile defense and air defense systems, and automated communication systems and electronic warfare tools. The company produces systems and devices related to electronic warfare…

JSC MIC NPO Mashinostroyenia is a leading Russian rocketry company responsible for defense programs involving cruise missile complexes capable of surface, underwater, and ground platform-based launches. JSC MIC NPO Mashinostroyenia’s involvement in Russia’s strategic nuclear forces includes the manufacture of intercontinental ballistic rockets and the development of space systems, spacecraft, and automatic and manned orbital stations in support of Russia’s Ministry of Defense.

Kalashnikov Concern produces a number of military weapons, including multiple grades and versions of assault rifles, grenade launchers, sniper rifles, military shotguns, and aircraft cannons. Kalashnikov Concern is the largest firearms producer in Russia…

“Ukraine, a new and important space on the Eurasian chessboard, is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire.”

“However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia.”… “Geopolitical pivots are the states whose importance is derived not from their power and motivation but rather from their sensitive location… which in some cases gives them a special role in either defining access to important areas or in denying resources to a significant player.” “Ukraine, Azerbaijan, South Korea, Turkey and Iran play the role of critically important geopolitical pivots,”he wrote in The Grand Chessboard, a book viewed by many as a blueprint for US world domination. Brzezinski wrote that

Eurasia is “the chessboard on which the struggle for global primacy continues to be played,” and that “it is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus also of challenging America.”Understanding Brzezinski’s long-term view of Ukraine makes it easier to comprehend why

demonized Vladimir Putin. By prominently highlighting the mistreatment of activist group Pussy Riot, incessantly condemning Russia’s regressive position on gay rights, and excessively focusing on substandard accommodations at the Sochi Olympic Games, the Obama administration has cleverly distracted the public from delving into

US support of the ultra-nationalist, neo-Nazi factions of the Ukrainian opposition…

In his book, Brzezinski contends that “America stands supreme in the four decisive domains of global power: militarily… economically… technologically… and culturally.”While this may have been accurate in 1997, it can be argued that today, other than militarily, the US no longer reigns supreme in these domains.

As the twentieth century draws to a close, the United States has emerged as the world’s only superpower: no other nation possesses comparable military and economic power or has interests that bestride the globe… The Grand Chessboard presents Brzezinski’s bold and provocative geostrategic vision for American preeminence in the twenty-first century. Central to his analysis is the exercise of power on the Eurasian landmass, which is home to the greatest part of the globe’s population, natural resources, and economic activity. Stretching from Portugal to the Bering Strait, from Lapland to Malaysia, Eurasia is the ”grand chessboard” on which America’s supremacy will be ratified and challenged in the years to come. The task facing the United States, he argues, is to manage the conflicts and relationships in Europe, Asia, and the Middle East so that no rival superpower arises to threaten our interests or our well-being. The heart of The Grand Chessboard is Brzezinski’s analysis of the four critical regions of Eurasia and of the stakes for America in each arena—Europe, Russia, Central Asia, and East Asia. The crucial fault lines may seem familiar, but the implosion of the Soviet Union has created new rivalries and new relationships, and Brzezinski maps out the strategic ramifications of the new geopolitical realities.

CHINAS STRATEGIC SHIFT TOWARD THE REGION OF THE FOUR SEAS: THE MIDDLE KINGDOM ARRIVES IN THE MIDDLE EAST

energy-driven. In 1993, when it became a net oil importer for the first time, Beijing embarked on a “go out” (zhouchuqu) policy to procure energy assets abroad to feed its growing economy… The legitimacy of the Chinese Communist Party (CCP) rests on continued economic growth and delivering a rising standard of living for the Chinese population. As a corollary, China is also concerned about

security of energy supply lines and Sea Lines of Communication (SLOCS). Because the United States is considered its main opponent in the international system, China is wary of U.S. naval dominance and the risk of choking China’s energy supply through the Malacca Straits should hostilities break out over Taiwan. This is referred to as the “Malacca Dilemma,” where 80 percent of China’s oil imports traverse this chokepoint that is vulnerable to piracy and U.S. blockade… The Middle East is also a strategic logistics and trade hub for

China’s exports andmarket access in Europe and Africa. China understands the importance of having strong economic foundations for military power and sees that continued market access for their exports to fuel China’s economy would build up their war chest to further underwrite military modernization.The

EU is currently China’s largest trading partner ahead of the United States. Moreover, China also has vast interests on the African continent–both via infrastructure projects and long-term energy supply contracts. More than 1 million Chinese are in Africa (up from about 100,000 in the early 2000s), with trade at $120 billion in 2011. In 2009, China overtook the United States to become

Africa’s number one trading partner. As such, the Middle East is a strategic region that connects Europe, Africa, and Asia markets. Thus, given the

Middle East’s location as a trade hub linking the three continents, a vital region for market access, and site of vast energy reserves to fuel China’s continued economic growth, the CCP deems the Middle East as a high priority on its foreign policy agenda. As the United States “pivots” towards Asia, China will naturally seek strategic depth in areas that were once dominated by the United States and its Western allies…In order to procure energy assets and ensure security of energy supply, China has adopted a two-pronged strategy. First, it has embarked on

a “New Silk Road” of infrastructure projects. China is turning historical trading routes of the ancient Silk Roads into a modern grid of overland pipelines, roads, and railways for its energy supplies–called the New Silk Road. This is to circumvent naval chokepoints and hedge against risks of naval blockades or embargoes. Second, it has increased military power projection to protect overseas interests. China has also embarked on military (especially naval) modernization to protect overseas interests and adjusted its

strategy from “coastal defense” to “far seas defense” for the PLA Navy (PLAN). China uses a combination of economic, political, and military tools to further this two-pronged strategy.

China is building various infrastructure projects in the Middle East and Africa. These are usually bilateral agreements with the government to bypass market forces of tender and competition. One such example is the 2012 Sino-Israeli agreement for Chinese companies to build a cargo rail line linking the Mediterranean port of Ashdod with Eilat in the Red Sea, dubbed the “Med-Red rail,” and the “steel canal” to bypass an increasingly unstable Suez Canal under the Muslim Brotherhood’s control… Likewise in Egypt, China recently penned bilateral government agreements with President Muhammad Mursi to build railways, telecommunications, and other infrastructure projects backed by Chinese concessional loans, providing funding with advantageous conditions that few other countries are willing to provide.In addition to bilateral agreements, China also provides competitive package deals that may include military aid in addition to concessional loans, as well as loans for oil, loans for strategic minerals, and/or loans for infrastructure projects. Western companies cannot compete, because

For example, in Afghanistan in 2007, China’s Metallurgical Group (M.C.C.) outbid the second runner up by 70 percent, offering $3.5 billion for the Aynak cooper mine estimated to go for $2 billion. M.C.C. offered $1 billion more than any of its competitors from Canada, Europe, Russia, the United States, and Kazakhstan. The entire package included a one-stop shop to build railways, a 400-megawatt generating plant to power the copper mine and Kabul, coal mines to feed the plant’s generators, as well as schools, roads, and even mosques for the Afghanstan…

China also uses its influence as a

UNSC member for preferential treatment and to further cement its ties with host countries. In the past, China has used its veto power to shield, or water down, sanctions on countries accused of human rights violations and illicit nuclear programs… In fact, Syrian President Bashar al-Asad visited Beijing in 2004 to seek

economic cooperation based on the Chinese model of development–maintaining authoritarian control while experiencing economic growth. This is referred to as the Beijing Consensus, which challenges the Washington Consensus stipulating that only political liberalization will lead to economic growth…

China also tries to further its influence via coalitions of non-Western countries, such as

BRICS (Brazil-Russia-India-China-SouthAfrica) or the

NAM (Non-Aligned Movement), which convened a summit in Tehran in August 2012, ending Iran’s isolation. Participants at the level of minister or higher from 80 countries attended, and 50 countries sent their heads of government. UN Secretary General Ban Ki-Moon also attended, as well as China–an observer of NAM since 1992–and Russia was invited as Iran’s special guest. With 120 member countries and two-thirds of UN states dual-hatted as full NAM members, China naturally used the NAM summit platform to push for enhancing the UN’s role and to promote cooperation within NAM countries…

Moreover, China is aligning with key countries that have problematic relations with the United States and the West–Iran, Syria, and Turkey–that are also of geostrategic significance and lie on the littoral of

the four seas: the Caspian, Black, Mediterranean, and Arabian/Persian Gulf. This energy-rich “Region of the Four Seas” lies in the “strategic energy ellipse,” which has over 70 percent of the world’s proven energy reserves.Syria’s Bashar al-Asad first promoted the concept of a “Four Seas Strategy” to transform his country into a trade hub. The Ankara-Damascus-Tehran triangle would become the nucleus of an approach that aimed to include Iraq and the Caucasus in a geographical continuum linking the Four Seas.

Beijing has wielded its UNSC power to shield Iran’s nuclear program, water down sanctions, protect Syria’s Asad regime, and upgrade military ties/strategic partnership with NATO member Turkey…The Chinese view that the United States currently controls the west bank of oil rich Persian Gulf via its pro-American proxies (e.g.,Saudi Arabia and smaller Gulf states), rendering the Gulf an “internal sea” for the United States. However, if China and Russia expand relations with Iran, they could maintain a “minimum balance” to thwart possible U.S. naval embargoes against other countries. If the United States and China should ever have a military clash over Taiwan, Washington would not shut off China’s Gulf oil supplies since China, Russia, and Iran control the Gulf’s “east bank.” …

Source: Wikipedia

China… is building railway networks connecting Central Asia, the Middle East, and Europe…Dubbed the “Iron Silk Road”, in November 2010, China signed agreements with Iran to connect railways through Central Asia, as well as onto Turkey and Europe…

The Chinese military has also changed its strategy from “coastal defense” to “far sea defense”, seeking to project naval power well beyond its coast, from the oil ports of the Middle East to the shipping lanes of the Pacific. Admiral Liu Huaqing, who modernized China’s navy as its commander from 1982-1988, defined the Sino-centric concept of the Near Sea, as well as the Middle and Far Seas as depicted in the Map below.

In an interview with Xinhua in 2010, Rear Adm. Zhang Huachen, deputy commander of the East Sea Fleet, said, “With our naval strategy changing now, we are going from coastal defense to far sea defense.” He added, “With the expansion of the country’s economic interests, the navy wants to better protect the country’s transportation routes and the safety of our major sea lanes.”…

Around the Mediterranean, China is acquiring stakes in shipping and logistics companies and is expanding ports in Greece (Piraeus Port), France (Port of Marseille Fosx 4XL container terminal), Spain (El Prat pier in the Barcelona Port), as well as rail, air terminals, and fiber optic networks in Portugal (Huawei and Portugal Telecom) and Italy (air terminal north of Rome). In the Eastern Mediterranean, the China Harbor Engineering Company is expanding Lebanon’s Tripoli port. In Israel, it is cooperating with Ashdod port authorities and building a light rail from Tel Aviv to Eilat. It is also connecting the Eilat port to the Ashdod and Haifa ports in Israel. In Egypt, China’s shipping company COSCO has a 20 percent share in the Danish Maersk container port in Port Said… Across the Suez Canal in the Red Sea, China is already enlarging Port Sudan, which gives China the ability to deliver maritime shipments (whether civilian or military) to Sudan, East Africa, and the Horn of Africa region. Near the Persian Gulf in February 2013, China took operational control of Pakistan’s Gwadar Port from Singapore’s PSA International, which it also built.

However, China still faces obstacles in challenging the U.S. military and realizing its goal as a dominant maritime power. The Mediterranean is still dominated by NATO and the U.S. 6th Fleet, and the Gulf of Aden and the Persian Gulf by U.S. 5thFleet. In the near-term, China’s navy will show its presence as a new kid on the block in the far seas, but will be unable to challenge U.S. naval pre-eminence. However, over the longer term, as the United States and NATO cut back on their defense budgets due to economic woes while China continues to increase its spending and military modernization, the U.S. naval position may begin to erode as China becomes a formidable competitor for influence in power projection in this region

“counter-encirclement strategy”

Since the 2003 U.S. intervention in Iraq, China has become more active in pursuing a “counter-encirclement strategy” against perceived U.S. hegemony in the Middle East… In 2005, Jin Liangxiang, research fellow at the Shanghai Institute for International Studies, argued that China was experiencing a new activism and that “the age of Chinese passivity in the Middle East is over.” He declared, “If U.S. strategic calculations in the Middle East do not take Chinese interests into account, then they will not reflect reality.”That same year, President Hu Jintao delivered a message to the People’s Liberation Army (PLA) on the “New Historic Missions” strategy, which underscores the PLA’s role in safeguarding national interest overseas.There is also a rising tide of domestic nationalism, with China’s own historic narrative as a victim in the past “century of humiliation” and that the time has come to reassert the Middle Kingdom’s proper place in the world…Chinese leaders and strategists have often lambasted

U.S. strategy of encircling and containing a rising China.

China views that its eastern flank is already surrounded by anti-Chinese alliances forged by the

U.S. defense treaties with Japan, South Korea, Australia, the Philippines, and Thailand, in addition to

defense cooperation with Taiwan, Singapore, and Indonesia.

With the post September 11 War on Terrorismand subsequent stationing of U.S./NATO troops in Central Asia and Afghanistan, China is now encircled by a U.S. military presence to contain its freedom of action. Air Force colonel Dai Xu, a renowned military strategist, wrote in an article, “China is in a crescent-shaped ring of encirclement. The ring begins in Japan, stretches through nations in the South China Sea to India, and ends in Afghanistan. Washington’s deployment of anti-missile systems around China’s periphery forms a crescent shaped encirclement”.

As the United States embarks on its pivot to Asia in order to contain China and it partners with Southeast Asian nations to counter China’s territorial and maritime claims in the South China Sea, Beijing is taking counter-encirclement steps… As U.S. influence begins to wane in the Middle East and pivots, or “rebalances,” toward the Asia Pacific, China is seizing a strategic window of opportunity to fill the growing vacuum and attempting to shape a post-Arab Spring region that is more hospitable for China’s power projection capabilities. A rising power with expanding interests, China will become more proactive in the Middle East and North Africa…

In July 2012, China’s State Council approved the establishment of a new national prefecture on Woody Island in the Paracel Islands, which is disputed territory between Vietnam and China. China’s Central Military Commission announced that it would deploy a garrison of soldiers to guard the Paracel Islands, announced a new policy of “regular combat-readiness patrols” in the South China Sea, and began offering oil exploration rights in locations recognized by the international community as within Vietnam’s exclusive economic zone.Although China established a new military garrison and unilaterally annexed a disputed area, America’s reaction has been muted. In a recent Wall Street Journal article, Senator James Webb (D-VA) observed that China’s economic power and its assertive use of its navy and commercial vessels to project influence has changed the dynamics in East Asia. He criticized, “In truth, American vacillations have for years emboldened China.” He added that East Asian allies were “waiting to see whether America will live up to its uncomfortable, but necessary, role as the true guarantor of stability in East Asia, or whether the region will again be dominated by belligerence and intimidation.”…

The credibility of the U.S. security guarantee is at a critical crossroads. The U.S. course of action will have long-lasting ramifications for regional security both in the Middle East and in East Asia. If United States fails to reassure its allies, there will be a loss of confidence in U.S. security umbrella. This in turn will lead to an arms race and increased nuclear proliferation that threatens to destabilize both regions…

Dr. Christina Lin is a Visiting Scholar at the Center for Global Peace and Conflict Studies at the University of California, Irvine, and a Fellow at the Center for Transatlantic Relations at the Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University. This study was originally presented at a Middle East Roundtable at the Joint Staff, Pentagon on September 18, 2012, Washington, D.C

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15 July 2014

Fortaleza, Brazil,

1. We, the leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, met in Fortaleza, Brazil, on 15 July 2014 at the Sixth BRICS Summit…

5.The Sixth Summit takes place at a crucial juncture, as the international community assesses how to address the challenges of strong economic recovery from the global financial crises, sustainable development, including climate change, while also formulating

At the same time, we are confronted with persistent political instability and conflict in various global hotspots and non-conventional emerging threats. On the other hand, international governance structures designed within a different power configuration show increasingly evident signs of

losing legitimacy and effectiveness, as transitional and ad hoc arrangements become increasingly prevalent,

often at the expense of multilateralism.

We believe the BRICS are an important force for incremental change and reform of current institutions towards more representative and equitable governance, capable of generating more inclusive global growth and fostering a stable, peaceful and prosperous world.

6. During the first cycle of BRICS Summits, collectively our economies have consolidated their

position as the main engines for sustaining the pace of the international economy as it recovers from the recent economic and financial global crisis. The BRICS continue to contribute significantly to global growth and to the reduction of poverty in our own and other countries. Our economic growth and social inclusion policies have helped

to stabilize global economy,

to foster the creation of jobs,

to reduce poverty, and to

combat inequality, thus contributing to the achievement of the Millennium Development Goals.

In this new cycle, besides its contribution in fostering strong, sustainable and balanced growth, BRICS will continue to play a significant role in promoting social development and in contributing to define the international agenda in this area, building on its experience in addressing the challenges of poverty and inequality…

8. The world economy has strengthened, with signs of improvement in some advanced economies. Significant downside risks to this recovery remain, however.

Unemployment and debt levels are worryingly high and growth remains weak in many advanced economies. Emerging market economies and developing countries (EMDCs) continue to contribute significantly to global growth and will do so in the years to come. Even as the global economy strengthens, monetary policy settings in

some advanced economies may bring renewed stress and volatility to financial markets and

changes in monetary stance need to be carefully calibrated and clearly communicated

in order to minimize negative spillovers.

9. Strong macroeconomic frameworks, well regulated financial markets and robust levels of reserves have allowed EMDCs in general, and the BRICS in particular, to better deal with the risks and spillovers presented by the challenging economic conditions in the last few years. Nevertheless, further macroeconomic coordination amongst all major economies, in particular in the G20, remains a critical factor for strengthening the prospects for a vigorous and sustainable recovery worldwide…

The BRICS stand ready to contribute to the G20 goal of lifting our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years.

10… As a new round of BRICS Summits begins, we remain committed to deliver constructive responses to global economic and financial challenges and to serve as a strong voice for the promotion of sustainable development, inclusive growth, financial stability and of more representative international economic governance.

We will continue to pursue our fruitful coordination and to promote our development goals within the international economic system and financial architecture.

11. BRICS, as well as other EMDCs, continue to face significant financing constraints to address infrastructure gaps and sustainable development needs. With this in mind, we are pleased to announce the signing of the Agreement establishing the

New Development Bank (NDB)

, with the purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies…

12. The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members.The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India.The headquarters of the Bank shall be located in Shanghai.

13. We are pleased to announce the signing of theTreaty for the establishment of the

BRICS Contingent Reserve Arrangement (CRA)

with an initial size of US$ 100 billion. This arrangement will have

a positive precautionary effect,

help countries forestall short-term liquidity pressures,

promote further BRICS cooperation,

strengthen the global financial safety net and complement existing international arrangements… The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures…

17. We believe that sustainable development and economic growth will be facilitated by taxation of revenue generated in jurisdictions where economic activity takes place. We express our concern over the harmful impact of tax evasion, transnational fraud and aggressive tax planning on the world economy. We are aware of the challenges brought by aggressive tax avoidance and non-compliance practices…

18. We remain disappointed and seriously concernedwith the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process…must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy. The Fund must remain a quota-based institution…

21. We believe all countries should enjoy due rights, equal opportunities and fair participation in global economic, financial and trade affairs, recognizing that countries have different capacities and are at different levels of development.

We strive for an open world economy with efficient allocation of resources, free flow of goods, and fair and orderly competition to the benefit of all.

Jul 25, 2014

It is symbolic that the recent BRICS summit in Fortaleza, Brazil, took place exactly seven decades after the Bretton Woods Conference that created the International Monetary Fund and the World Bank. The upshot of the BRICS meeting was the announcement of the

New Development Bank, which will mobilize resources for infrastructure and sustainable development projects, and

a Contingent Reserve Arrangement to provide liquidity through currency swaps.

The Bretton Woods Conference marked one of history’s greatest examples of international economic cooperation. And, while no one can say yet whether the BRICS’ initiatives will succeed, they represent a major challenge to the Bretton Woods institutions, which should respond. Rethinking the role of the US dollar in the international monetary system is a case in point.

One key feature of the Bretton Woods system was that countries would tie their exchange rates to the US dollar. While the system was effectively eliminated in 1971, the US dollar’s central role in the international monetary system has remained intact – a reality that many countries are increasingly unwilling to accept…

According to the Belgian economist Robert Triffin, an international monetary system based on a national currency is inherently unstable, owing to the resulting tensions among the inevitably divergent interests of the issuing country and the international system as a whole. Triffin issued his warning more than 50 years ago, but it has recently gained traction, as

China’s rise has made the world increasingly disinclined to tolerate the instability caused by a dollar-denominated system. The solution, however, lies not in replacing the dollar with the renminbi, but in strengthening the role of the world’s only truly global currency: the IMF’sSpecial Drawing Rights.

Following the creation of SDRs in 1969, IMF members committed to make them “the principle reserve asset in the international monetary system,” as stated in the Articles of Agreement. But the peculiar way in which SDRs were adopted limited their usefulness.

For starters, the separation of the IMF’s SDR account from its general account made it impossible to use SDRs to finance IMF lending. Furthermore, though countries accrue interest on their holdings of SDRs, they have to pay interest on the allocations they receive. In other words, SDRs are both an asset and a liability, functioning like a guaranteed credit line for the holder – a sort of unconditional overdraft facility.

Nonetheless, SDRs have proved to be useful. After initial allocations in 1970-1972, more were issued to increase global liquidity during major international crises: in 1979-1981, in 1997, and, in particular, in 2009, when the largest issue – the equivalent of $250 billion – was made. While developed countries, including the US and the United Kingdom, have drawn on their allocations, the major users have been developing and, in particular, low-income countries. In fact, this is the only way in which developing countries (China aside) share in the creation of international money. Several estimates indicate that, given the additional demand for reserves, the world could absorb annual allocations of $200-300 billion or even more.

In 1979, the IMF economist Jacques Polak, who had been part of the Dutch delegation at the Bretton Woods conference, outlined a plan for doing just that. His recommendations include, first and foremost, making all of the IMF’s operations in SDRs, which would require ending the separation of the IMF’s SDR and general accounts. The simplest way to fulfill this vision would be to allocate

SDRs as a full reserve asset, which countries could either use or deposit in their IMF accounts.

The IMF would use those deposits to finance its lending operations, rather than having to rely on quota allocations or “arrangements to borrow” from members. Other provisions could be added. To address developing countries’ high currency demands, while enhancing their role in the creation of international money, a formula could be created to give them a larger share in SDR allocations than they now receive…

Just as the Bretton Woods framework restored order to the global economy after WWII, a new monetary framework, underpinned by a truly international currency, could strengthen much-needed economic and financial stability. Everyone – even the US – would benefit from that.

José Antonio Ocampo, former United Nations Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia, is Professor and Member of the Committee on Global Thought at Columbia University.